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This is the same reason we have the following problem in the United States: (1) Owning a home in the US is a good investment. (2) Housing in the US is afforda

This is the same reason we have the following problem in the United States: (1) Owning a home in the US is a good investment. (2) Housing in the US is affordable. Both 1 and 2 cannot be true over the long term, if the price of housing appreciates faster than inflation and wages it is a good investment and if it does that it is no longer affordable because wages have not kept up with the cost of housing.

majormajor 7y ago
Doesn't housing primarily only need to be a better "investment" than renting, not vs other assets? Housing-as-investment seems to come in two forms, but I don't think either needs unsustainable growth? 1) you'll have at least one asset going into retirement, or 2) you're going to borrow against the first one to buy another, rent it out, etc, which doesn't need a ton of appreciation in value as you start getting the cumulative income streams Consider that in many parts of the country housing is still a "good investment" but you don't have coastal-California-level unaffordability. Housing prices in the most desirable cities are a result of extremely heightened inequality. However, ownership is a path to security and insulation from the whims of the super-wealthy, so undercutting that doesn't seem like a great anti-inequality strategy.
- bretpiatt 7y ago
  Home ownership has created wealth for two independent reasons: 1. In many markets in the US housing has been a good investment (for a bunch of reasons too long to discuss here). 2. Owning a home with a mortgage on it forces the owner to "put money in savings" each month as they pay down principal on the loan. The rent v. own discussion is a complex financial decision. If you buy a house with 20% down you're using 5:1 leverage. Even in historically strong housing markets if you put the same amount of principal into a 5:1 levered SP500 you'd have made much more money buying stocks than you would that home. So if your rent = interest + maintenance and you could afford to invest the same in principal in equities you'd do much better. Now I don't know any investment advisor who would tell a client (and I'm not one at all so take my advice for what it is -- the thoughts of a business person) to go all in on a 5x leveraged equity portfolio.
foogazi 7y ago
> (1) Owning a home in the US is a good investment. Like any investment it depends on the price > (2) Housing in the US is affordable The US is so big, there are plenty of places in the US with affordable housing To your third point, throughout history most people have not had access to other wealth assets besides a house. So even if the value of a house just tracked inflation it was doing its job of storing wealth. There are places in this world were a cow is an investment, and being able to get your hands on anything that preserves wealth is valuable
fsckboy 7y ago
modern finance theory completely disagrees with your argument. as a very top level explanation (appealing to things you already know and don't dispute), your retirement should be invested in the stock market; and yet, the stock market is "fairly priced", no company's shares are clearly better priced than any other's. So, "you are better off in the stock market than not in the stock market, and you are better off owning a diversified, market-weighted basket of stocks". The stock market is (1) a good investment and (2) not only affordable, but is so affordable you can't afford not to invest. (3) the investment aspect of the housing market is not appreciably different except you don't easily get to diversify your portfolio. Luckily, location location location does a type of risk averaging, though you are exposed to the risk of location value changing. Housing does have another aspect, consumption: if you live it in, you are renting the house from yourself, consuming the space-time and depriving yourself of the rent you could be entitled to. Therefore, if you live in an expensive house, you are paying expensive rent.
- bretpiatt 7y ago
  What modern finance theory are you referring to? We may be talking past each other. Owning equity in a business, either through the stock market or private ownership, is different than a house. Simplistically the equity goes up in value as the business grows or goes down if it shrinks. A business is not a single fixed capital asset. A house is a fixed asset that does not grow. In order for a house to increase in price you have fixed asset appreciation. If that appreciation increases in price faster than wage growth or inflation it's a good investment and it isn't as affordable in the future for the median wage earner.
  - fsckboy 7y ago
    your definition of "good investment" is not a workable definition because you're basing it a priori on the future outcome that you don't know yet: "if that appreciation increases in price faster than wage growth or inflation it's a good investment" What is a house's expected appreciation compared to inflation? that's all bound up in the "crowdsourced" current market price already. It's something else that makes a house a good investment, rather than your definition, and I tried to illustrate that in my first answer by pointing out that stocks are good investments without knowing precisely how individual stocks will perform in the future.

majormajor 7y ago

Doesn't housing primarily only need to be a better "investment" than renting, not vs other assets? Housing-as-investment seems to come in two forms, but I don't think either needs unsustainable growth? 1) you'll have at least one asset going into retirement, or 2) you're going to borrow against the first one to buy another, rent it out, etc, which doesn't need a ton of appreciation in value as you start getting the cumulative income streams Consider that in many parts of the country housing is still a "good investment" but you don't have coastal-California-level unaffordability. Housing prices in the most desirable cities are a result of extremely heightened inequality. However, ownership is a path to security and insulation from the whims of the super-wealthy, so undercutting that doesn't seem like a great anti-inequality strategy.

bretpiatt 7y ago
Home ownership has created wealth for two independent reasons: 1. In many markets in the US housing has been a good investment (for a bunch of reasons too long to discuss here). 2. Owning a home with a mortgage on it forces the owner to "put money in savings" each month as they pay down principal on the loan. The rent v. own discussion is a complex financial decision. If you buy a house with 20% down you're using 5:1 leverage. Even in historically strong housing markets if you put the same amount of principal into a 5:1 levered SP500 you'd have made much more money buying stocks than you would that home. So if your rent = interest + maintenance and you could afford to invest the same in principal in equities you'd do much better. Now I don't know any investment advisor who would tell a client (and I'm not one at all so take my advice for what it is -- the thoughts of a business person) to go all in on a 5x leveraged equity portfolio.

foogazi 7y ago

> (1) Owning a home in the US is a good investment. Like any investment it depends on the price > (2) Housing in the US is affordable The US is so big, there are plenty of places in the US with affordable housing To your third point, throughout history most people have not had access to other wealth assets besides a house. So even if the value of a house just tracked inflation it was doing its job of storing wealth. There are places in this world were a cow is an investment, and being able to get your hands on anything that preserves wealth is valuable

fsckboy 7y ago

modern finance theory completely disagrees with your argument. as a very top level explanation (appealing to things you already know and don't dispute), your retirement should be invested in the stock market; and yet, the stock market is "fairly priced", no company's shares are clearly better priced than any other's. So, "you are better off in the stock market than not in the stock market, and you are better off owning a diversified, market-weighted basket of stocks". The stock market is (1) a good investment and (2) not only affordable, but is so affordable you can't afford not to invest. (3) the investment aspect of the housing market is not appreciably different except you don't easily get to diversify your portfolio. Luckily, location location location does a type of risk averaging, though you are exposed to the risk of location value changing. Housing does have another aspect, consumption: if you live it in, you are renting the house from yourself, consuming the space-time and depriving yourself of the rent you could be entitled to. Therefore, if you live in an expensive house, you are paying expensive rent.

bretpiatt 7y ago
What modern finance theory are you referring to? We may be talking past each other. Owning equity in a business, either through the stock market or private ownership, is different than a house. Simplistically the equity goes up in value as the business grows or goes down if it shrinks. A business is not a single fixed capital asset. A house is a fixed asset that does not grow. In order for a house to increase in price you have fixed asset appreciation. If that appreciation increases in price faster than wage growth or inflation it's a good investment and it isn't as affordable in the future for the median wage earner.
- fsckboy 7y ago
  your definition of "good investment" is not a workable definition because you're basing it a priori on the future outcome that you don't know yet: "if that appreciation increases in price faster than wage growth or inflation it's a good investment" What is a house's expected appreciation compared to inflation? that's all bound up in the "crowdsourced" current market price already. It's something else that makes a house a good investment, rather than your definition, and I tried to illustrate that in my first answer by pointing out that stocks are good investments without knowing precisely how individual stocks will perform in the future.